Audit Pricing: The Size Factor

Abstract

Based on data from the German market, this study aims at adding further findings to international research in the field of audit pricing, which so far was mainly focused on the US and Australasian market. First, for Germany we can affirm past research that Big4 auditors earn a premium over other auditors. We can also affirm that providing non-audit services has a positive influence on the audit fees. Beyond these results, we can show that the market leader of our sample, KPMG, can even earn an audit fee premium over the remaining Big4 auditors. We can prove a positive effect of non-audit services on audit fees for Big4 audits only. Furthermore, we can show a significant influence of risk variables such as leverage or past losses for the small audit clients in our sample only. Finally, this study shows that using the logarithm of the number of employees instead of the logarithm of total assets is a good proxy for company size.